GR-5 Controllers

GR-5.1 Key Provisions

GR-5.1.1

Condition 3 of the CBB's licensing conditions specifies, among other things, that conventional bank licenseesG must satisfy the CBB that their controllersG are suitable and pose no undue risks to the licensee (See Paragraph LR-2.3.1). There are also certain procedures which are set out in Articles 52 to 56 of the Central Bank of Bahrain and Financial Institutions Law (Decree No. 64 of 2006) ("CBB Law") on controllersG . Licensees and their controllersG must also observe the CBB's Capital Markets requirements in respect of changes in holdings of shares of listed companies. There are differing requirements for locally incorporated licensees ("Bahraini conventional bank licenseesG ") and branches of foreign banks ("overseas conventional bank licenseesG "). The requirements of this Chapter apply in their entirety to Bahraini conventional bank licenseesG . Requirements for overseas conventional bank licenseesG are less onerous and are outlined in Paragraph GR-5.1.10.

Amended: July 2013
Amended: October 2011
October 07

GR-5.1.2

There are strict limits on changes in the holdings of shares held by controllersG in Bahraini conventional bank licenseesG or the extent of voting control exercised by controllersG in Bahraini conventional bank licenseesG . These limits are outlined in Section GR-5.3. Failure to observe these limits may lead to imposition of enforcement provisions of the Rulebook on the licensee and other penalties on the controllerG under the provisions of the CBB Law as outlined in ParagraphGR-5.1.1, including loss of voting power or transfer of shares.

Amended: July 2013
Amended: October 2011
October 07

GR-5.1.3

The approval provisions outlined in ParagraphsGR-5.1.4 and GR-5.1.5 do not apply to existing holdings or existing voting control by controllersG already approved by the CBB. The approval provisions apply to new/prospective controllersG or to increases in existing holdings/voting control as outlined in ParagraphsGR-5.1.4 and GR-5.1.5, following the issuance of Regulation No.(31) for the year 2008.

Amended: July 2013
Amended: October 2011
October 07

GR-5.1.4

Applicants seeking control of a conventional bank licenseG must provide details of their intended control, by submitting a duly completed Form 2 (Application for authorisation of controllerG ). (See Subparagraph LR-3.1.5(a))

Amended: July 2013
Amended: October 2011
Amended: January 2011
October 07

GR-5.1.5

For purposes of Paragraph GR-5.1.4, prior approval from the CBB must be obtained when any of the following changes relating tocontrollersG (as defined in Section GR-5.2 and subject to the limits as outlined in Section GR-5.3) apply:

(b) An existing controllerG increasing its holding from above10% and up to and including 20% of issued and paid up share capital;

(c) An existing controllerG increasing its holding from above 20% and up and including 30% of issued and paid up share capital;

(d) An existing controllerG increasing its holding from above 30% and up to and including 40% of issued and paid up share capital; or

(e) An existing controller increasing its holding to above 40% of the issued and paid up share capital of an unlisted bank. In this instance, the controller must be a regulated legal person.

Amended: July 2013
Amended: October 2011
Amended: January 2011
October 07

GR-5.1.6

For approval under Paragraph GR-5.1.5 to be granted, the CBB must be satisfied that the proposed controllerG or increase in control poses no undue risks to the licensee. The CBB will therefore consider or reconsider the criteria outlined in Paragraphs GR-5.3.6 to GR-5.3.8 in any request for approval. The CBB may impose any restrictions that it considers necessary to be observed in case of its approval of a new controllerG , or any of the changes listed to existing controllersG in Paragraph GR-5.1.5. These restrictions will include the applicable maximum allowed limit of holding or control (as outlined in SectionGR-5.3). A duly completed Form 2 (ControllersG ) must be submitted as part of the request for a change in controllersG . An approval of controllerG will specify the applicable period for effecting the proposed acquisition of shares.

Amended: July 2013
Amended: October 2011
October 07

GR-5.1.7

If, as a result of circumstances outside the conventional bank licensee'sG knowledge and/or control, one of the changes specified in Paragraph GR-5.1.5 is triggered prior to CBB approval being sought or obtained, the conventional bank licenseeG must notify the CBB no later than 15 calendar days from the date on which those changes have occurred.

Amended: January 2017
October 07

GR-5.1.8

Conventional bank licenseesG are required to notify the CBB as soon as they become aware of events that are likely to lead to changes in their controllersG . The criteria by which the CBB assesses the suitability of controllersG are set out in Section GR-5.3. The CBB aims to respond to requests for approval within 30 calendar days and is obliged to reply within 3 months to a request for approval. The CBB may contact references and supervisory bodies in connection with any information provided to support an application for controllerG . The CBB may also ask for further information, in addition to that provided in Form 2, if required to satisfy itself as to the suitability of the applicant.

October 07

GR-5.1.8A

The criteria by which the CBB assesses the suitability of controllersG are set out in Section GR-5.3.

Added: July 2013

GR-5.1.8B

Within 30 days of receiving all required documentation for an application for authorisation for control, the CBB will issue its decision in writing to the applicant. The CBB may extend the period to review the completed application for no more than three months from the date where all required documentation has been submitted.

Added: July 2013

GR-5.1.9

Conventional bank licenseesG must submit, within 3 months of their financial year-end, a report on their controllersG . This report must identify all controllersG of the licensee, as defined in Section GR-5.2 and the extent of their shareholding interests.

October 07

GR-5.1.10

In the case of overseas conventional bank licenseesG , the CBB must be notified of any new significant ownership in excess of 50% of the issued share capital of the concerned bank as soon as the branch becomes aware of the new significant ownership. The concerned branch must provide a copy of the relevant approval by the home supervisor of the concerned bank. No other action is necessary unless the CBB makes a subsequent request for information or issues a formal direction. The CBB reserves the right to take any appropriate actions, including withdrawal of the license.

Amended: January 2011
October 07

GR-5.2 Definition of Controller

GR-5.2.1

A controllerG of a conventional bank licenseeG is a natural or legal person who either alone, or with his associates:

(a) Holds 10% or more of the issued and paid up share capital in the ("L"), or is able to exercise (or control the exercise of) 10% or more of the voting power in L; or

(b) Holds 10% or more of the issued and paid up share capital in a parent undertakingG ("P") of L, or is able to exercise (or control the exercise of ) 10% or more of the voting power in P; or

(c) Is able to exercise significant influence over the management of L or P.

(d) If the controllerG is a legal person, a Director of the controllerG , a subsidiary of the controller,G or a Director of any subsidiary undertaking of the controllerG .

Amended: July 2013
Amended: October 2011
Amended: January 2011
October 07

GR-5.2.3

Associate also includes any other person or undertaking with which the controllerG has entered into an agreement or arrangement as to the acquisition, holding or disposal of shares or other interests in the conventional bank licenseeG , or under which they undertake to act together in exercising their voting power in relation to the conventional bank licenseeG .

Amended: October 2011
October 07

GR-5.3 Suitability of Controllers

GR-5.3.1

All new controllersG or prospective controllersG (as defined in Section GR-5.2) of a Bahraini conventional bank licenseeG must obtain the approval of the CBB. Any increases to existing controllers'G holdings or voting control (as outlined under paragraph GR-5.1.5) must also be approved by the CBB and are subject to the conditions outlined in this Section. Such changes in existing controllersG (as defined in the Section GR-5.2) or new/prospective controllersG of a conventional bank licenseeG must satisfy the CBB of their suitability and appropriateness according to the criteria outlined in Paragraphs GR-5.3.6 to GR-5.3.8. The CBB will issue an approval notice or notice of refusal of a controllerG according to the approval process outlined in Section GR-5.4 and Paragraph GR-5.1.6.

Amended: October 2011
Amended: January 2011
October 07

GR-5.3.2

All controllersG or prospective controllersG (whether natural or legal persons) of all conventional bank licensees are subject to the approval of the CBB. Persons who intend to take ownership stakes of 10% or above of the voting capital of a Bahraini conventional bank licenseeG are subject to enhanced scrutiny, given the CBB's position as home supervisorG of such licensees. The level of scrutiny and the criteria for approval become more onerous as the level of proposed ownership increases. Existing and prospective controllersG should therefore take particular note of the requirements of Paragraphs GR-5.3.3 to GR-5.3.8 if they wish to take more substantial holdings or control.

As a matter of policy, the CBB distinguishes between regulated legal persons (i.e. financial institutions) and unregulated legal persons and natural persons as controllersG . Regulated legal persons must satisfy home country prudential requirements. As a regulated legal person can own a greater percentage of issued and paid up share capital, it is subject to additional conditions as outlined in Paragraph GR-5.3.8. The CBB may also contact the home regulators for information on the "fit & proper" status of the applicant.

Amended: July 2013
Amended: January 2011
October 07

GR-5.3.3

A natural person will not be allowed to own or control more than 15% of the voting capital of a Bahraini conventional bank licenseeG. Such person must satisfy the conditions in ParagraphGR-5.3.6 below.

Amended: January 2011
October 07

GR-5.3.4

An unregulated legal person (including companies, trusts, partnerships) will not be allowed to own or control more than 20% of the voting capital of a Bahraini conventional bank licenseeG. All such persons must satisfy the conditions in ParagraphGR-5.3.7 below.

Amended: January 2011
October 07

GR-5.3.5

A regulated legal person will not be allowed to own or control more than 40% of the voting capital of a Bahraini conventional bank licenseeG . However, the 40% limit does not apply to unlisted Bahraini conventional bank licenseesG (where up to 100% of the issued and paid up share capital may be acquired) or to mergers which have been approved by the CBB.

Amended: July 2013
Amended: January 2011
Amended: January 2010
October 07

GR-5.3.5A

In respect of applications for bank licenses, after 1st October 2011, at least one controllerG must be a regulated financial institution holding at least 20% of the proposed licensee's shares.

Added: October 2011

GR-5.3.6

In assessing the suitability and the appropriateness of new/prospective controllersG (and existing controllersG proposing to increase their shareholdings) who are natural persons, CBB has regard to their professional and personal conduct, including, but not limited to, the following:

(a) The propriety of a person's conduct, whether or not such conduct resulted in conviction for a criminal offence, the contravention of a law or regulation, or the institution of legal or disciplinary proceedings;

(b) A conviction or finding of guilt in respect of any offence, other than a minor traffic offence, by any court or competent jurisdiction;

(c) Any adverse finding in a civil action by any court or competent jurisdiction, relating to fraud, misfeasance or other misconduct in connection with the formation or management of a corporation or partnership;

(d) Whether the person has been the subject of any disciplinary proceeding by any government authority, regulatory agency or professional body or association;

(e) The contravention of any financial services legislation or regulation;

(f) Whether the person has ever been refused a license, authorisation, registration or other authority;

(g) Dismissal or a request to resign from any office or employment;

(h) Disqualification by a court, regulator or other competent body, as a Director or as a manager of a corporation;

(i) Whether the person has been a Director, partner or manager of a corporation or partnership which has gone into liquidation or administration or where one or more partners or managers have been declared bankrupt whilst the person was connected with that partnership or corporation;

(j) The extent to which the person has been truthful and open with regulators;

(k) Whether the person has ever been adjudged bankrupt, entered into any arrangement with creditors in relation to the inability to pay due debts, or failed to satisfy a judgement debt under a court order or has defaulted on any debts; and

(l) The person's track record as a controllerG of, or investor in financial institutions.

(m) The financial resources of the person and the likely stability of their shareholding;

(n) Existing Directorships or ownership of more than 20% of the capital or voting rights of any financial institution in the Kingdom of Bahrain or elsewhere, and the potential for conflicts of interest that such Directorships or ownership may imply;

(o) The legitimate interests of depositors, creditors and minority shareholders of the licensee;

(p) If the approval of a person as a controllerG is or could be detrimental to the subject licensee, Bahrain's banking and financial sector or the national interests of the Kingdom of Bahrain; and

(q) Whether the person is able to deal with existing shareholders and the board in a constructive and co-operative manner.

Amended: October 2011
Amended: January 2011
October 07

GR-5.3.7

In assessing the suitability and appropriateness of legal persons as controllersG (wishing to increase their shareholding) or new/potential controllersG , CBB has regard to their financial standing, judicial and regulatory record, and standards of business practice and reputation, including, but not limited to, the following:

(a) The financial strength of the person, its parent(s) and other members of its group, its implications for the conventional bank licenseeG and the likely stability of the person's shareholding;

(b) Whether the person or members of its group have ever entered into any arrangement with creditors in relation to the inability to pay due debts;

(c) The person's jurisdiction of incorporation, location of Head Office, group structure and connected counterparties (as defined in CM-5.5.10) and the implications for the conventional bank licenseeG as regards effective supervision of the conventional bank licenseeG and potential conflicts of interest;

(d) The person's (and other group members') propriety and general standards of business conduct, including the contravention of any laws or regulations including financial services legislation on regulations, or the institution of disciplinary proceedings by a government authority, regulatory agency or professional body;

(e) Any adverse finding in a civil action by any court or competent jurisdiction, relating to fraud, misfeasance or other misconduct;

(f) Any criminal actions instigated against the person or other members of its group, whether or not this resulted in an adverse finding;

(g) The extent to which the person or other members of its group have been truthful and open with regulators and supervisors.

(h) Whether the person has ever been refused a licence, authorisation, registration or other authority.

(i) The person's track record as a controllerG of, or investor in financial institutions.

(j) The legitimate interests of depositors, creditors and shareholders of the licensee;

(k) Whether the approval of a controllerG is or could be detrimental to the subject licensee, Bahrain's banking and financial sector or the national interests of the Kingdom of Bahrain;

(l) Whether the person is able to deal with existing shareholders and the board in a constructive manner; and

(m) Existing Directorships or ownership of more than 20% of the capital or voting rights of any financial institution in the Kingdom of Bahrain or elsewhere, and the potential for conflicts of interest that such Directorships or ownership may imply.

October 07

GR-5.3.8

Regulated financial institutions wishing to acquire more than 10% of the voting capital of a Bahraini conventional bank licenseeG must observe the following additional conditions:

(a) The person must be subject to effective consolidated supervision by a supervisory authority which effectively implements the Basel Core Principles, or the IOSCO Principles or the IAIS Principles as well as the FATF Recommendations on Combating Money Laundering and the Financing of Terrorism and Proliferation;

(b) The home supervisorG of the person must give its formal written prior approval for (or otherwise raise no objection to) the proposed acquisition of the Bahraini conventional bank licenseeG ;

(c) The home supervisorG of the person must confirm to the CBB that it will require the person to consolidate the activities of the concerned Bahraini conventional bank licenseeG for regulatory and accounting purposes if the case so requires;

(d) The home supervisorG of the person must formally agree to the exchange of customer information between the person and its prospective Bahraini subsidiary/acquisition for AML/CFT purposes and for Large Exposures monitoring purposes;

(e) The home supervisorG of the person and the CBB must (if not already in place) conclude a Memorandum of Understanding in respect of supervisory responsibilities, exchange of information and mutual inspection visits;

(f) The person must provide an acceptably worded letter of guarantee to the CBB in respect of its obligation to support the licensee; and

(g) The Bahraini conventional bank licenseeG will be subject to the provisions of Chapter CM-5 in respect of exposures to its controllerG .

Amended: July 2013
Amended: July 2012
Amended: January 2011
October 07

GR-5.4 Approval Process

GR-5.4.1

Within 3 months of receipt of an approval request under Paragraph GR-5.1.4, the CBB will issue in writing to the applicant and the bank, an approval notice (with or without restrictions) or a written notice of refusal if it is not satisfied that the person concerned is suitable to increase his shareholding in, or become a controllerG of the conventional bank licenseeG . The notice of refusal or notice of approval with conditions will specify the reasons for the objection or restriction and specify the applicant's right of appeal in either case. Where an approval notice is given, it will specify the period for which it is valid and any conditions that attach (see Paragraph GR-5.1.6). These conditions will include the maximum permitted limit of holding or voting control exercisable by the controllerG .

Amended: July 2013
Amended: April 2013
Amended: January 2011
Amended: April 2008
October 07

GR-5.4.2

Notices of refusal have to be approved by an Executive Director of the CBB. The applicant has 30 calendar days from the date of the notice in which to make written representation as to why his application should not be refused. The CBB then has 30 calendar days from the date of receipt of those representations to reconsider the evidence submitted and make a final determination, pursuant to Article 53 of the Central Bank of Bahrain and Financial Institutions Law (Decree No. 64 of 2006) ("CBB Law") and Module EN (Enforcement).

October 07

GR-5.4.3

Pursuant to Article 56 of the CBB Law, where a person has become a controllerG by virtue of his shareholding in contravention of Paragraph GR-5.1.5, or a notice of refusal has been served to him under Paragraph GR-5.4.1 and the period of appeal has expired, the CBB may, by notice in writing served on the person concerned, direct that his shareholding shall be transferred or until further notice, no voting right shall be exercisable in respect of those shares.

Amended: April 2013
October 07

GR-5.4.4

Article 56 of the CBB Law empowers the CBB to request a court of law to take appropriate precautionary measures, or sell such shares mentioned in Paragraph GR-5.4.3, if the licensee fails to carry out the order referred to in the preceding Paragraph.